Emerging markets turmoil drains sales at Smirnoff maker Diageo

Shares in Diageo fell 5 per cent in early trading today after the Smirnoff-maker warned of a slowdown in demand from the powerhouse economies of China, Thailand and Nigeria.

A political crackdown on gift giving to officials in the communist People’s Republic, unrest in Thailand, and inflation in Nigeria, caused net sales growth to slow to 1.8 per cent in the six months to December 31 from 2.2 per cent over the three months before.

‘We reacted quickly to the changing emerging market environment,’ he said. ‘Reducing inventory levels in several key markets, which led to a weaker second quarter, and tightly managing our cost base to deliver improved operating margins in line with our expectations.

‘I expect this to deliver cost savings of £200million a year by the end of 2017.’

The drinks firm - which also owns Johnnie Walker, and Guinness - has managed to offset hiccups in some isolated markets with its broad geographic footprint, following the purchase of local drinks firms in places like Turkey, Brazil and India.

It said over the six month period net sales rose 4.6 per cent in North America and 1.3 per cent in emerging markets. Sales fell 1 per cent n Western Europe.

Diageo also noted a biggest than expected hit from negative currency movements at £280million, up from £180million.

Ian Shackleton, an analyst at Nomura, said: ‘Weak Asia numbers from Diageo today with Greater China revenue -23 per cent. Diageo mainly indicates weakness in its baiju business, which was down 66 per cent, but also indicates JW Black Label Scotch was down, although superpremium Scotch performed well.